Small to Medium Multifamily Preservation in Rural Markets

Defining Rural Communities

Rural has many different definitions and Rural America varies widely by economic base and geography. Rural can be broadly defined as non-metropolitan or non-urban and can be defined as:

  • HUD defines rural in three ways: a place having fewer than 2,500 inhabitants (census definition), a county or parish with an urban population of 20,000 inhabitants or less, or any place with a population not in excess of 20,000 inhabitants and not located in a Metropolitan Statistical Area.

  • USDA’s Community Facilities programs define rural as a city or town with a population of 20,000 or more.

  • The U.S. Census Bureau defines rural as what is not urban—that is, after defining individual urban areas, rural is what is left. Under this definition, about 60 million people, or one in five Americans, live in rural America. According to the 2010 census, ninety-seven percent of the country’s land mass is rural and about 20 percent of the population lives there.

Who Lives in Rural America?

High concentrations of poverty remain a challenge in many rural communities: Seventy percent of the 473 "persistent poverty" counties in the United States are rural. Additionally, 86 percent of persistent poverty counties have unemployment rates in excess of the national average, and 81 percent of persistent poverty counties are in the bottom quartile of counties in health outcomes.

While Rural America is often thought of as largely white, data shows that most rural counties where severe poverty persists are predominantly in counties where people of color are the majority, particularly in the rural south. Nearly 9 out of 10 rural and small-town African Americans reside in the Southern region of the United States. In order to understand why, we must look to our history, which lays out a clear connection from concentrations of slavery dating back to the mid-1800s and to concentrations of persistent poverty today.

Older adults aged 65 and over disproportionally live in rural areas. The aging population in rural America faces many challenges, including housing cost burdens on fixed incomes, social isolation, few services within walking distance, fewer public transportation options, and less access to health care and other essential services. With one definition of rural and small town as having less than 64 housing units per acre and a low degree of commuting to a metropolitan area, many aging households find that their housing is unable to meet their needs as they age or that it becomes unaffordable to maintain. That said, many seniors want to stay in their hometown as they age, yet there are very few options in rural communities.

Housing Challenges Facing Rural Markets

Rural areas face significant housing challenges, particularly for renters, including overcrowding, poor quality homes, a shortage of rental units, and a lack of affordable options. Other demographic and socioeconomic factors make it difficult for rural families to afford to rent homes, from an aging population requiring accessible units to changes in industry and employment affecting wages and poverty.

The loss of a few affordable properties can worsen affordability challenges and have an outsized impact in small rural communities and where there are few to no other affordable housing alternatives. Rural housing development is particularly difficult because rents in rural communities are often lower than in urban areas, but costs to develop are often just as much if not higher. Rural communities often are not large enough to substantiate large development, which drives up the per unit per annum (PUPA) expenses and further makes new projects difficult to develop and manage. This is part of the reason preservation is key to keep a significant number of affordable units in rural areas.

Housing Stock at Risk of Loss in Rural Communities

According to the National Low Income Housing Coalition, the United States faces a shortage of nearly 7 million rental homes affordable and available to the lowest income households. (2) As a result, 70% of extremely low-income renters whose household income is below the poverty threshold or 30% of their area median income (AMI) are severely cost-burdened, paying more than half of their income on rent and utilities.

Expiring affordability restrictions and policies that enable property owners to exit their affordability restrictions early pose a threat to the long-term affordability of federally assisted homes in rural communities. A key concern includes the expiring affordability restrictions of rental properties funded by the USDA's Section 515 Rural Rental Loan Program, which serves households at low and very low incomes: The average annual income for residents of USDA 515 units is $13,000. The program will start to reach its first peak of expiration in 2028, and nationwide, a little over 30,000 units of 515 housing stock are projected to lose their affordability by 2040. Most of the housing stock developed under the 515 program is over 30 years old and needs rehabilitation and recapitalization, posing a challenge for mission-minded developers trying to balance continued affordability and investment. Expiration of properties funded by the 515 programs will have a major effect on residents, particularly senior citizens and people with disabilities, who often reside in this subsidized housing stock.

According to the National Low Income Housing Coalition, North Dakota and South Dakota see the greatest percentage of their assisted housing expiring. A larger portion of North Dakota’s assisted housing expiring in the next five years is assisted by Section 8 Project-Based Rental Assistance (PBRA), which tends to have shorter renewal periods, while a larger portion of assisted homes expiring in the next five years are assisted by USDA programs.

Priorities for Preservation in Rural Communities

Affordable housing subsidy programs provide a critical foundation for the nation’s families with special needs. Thirty percent of federally assisted homes are explicitly reserved for elderly or disabled households. Because tenant targeting data are only available for the Section 8 PBRA, LIHTC, and Section 515 programs, the actual number is likely higher. The finance of new construction of affordable housing are federally funded through Low-Income Housing Tax Credit (LIHTC), HOME, CDBG, and the national Housing Trust Fund.

Preservation risks, stemming from expiring affordability restrictions, underfunding, or disrepair also put federally assisted rental homes at risk of being lost from the affordable housing stock. Affordable housing preservation efforts rely on subsidies that preserve affordability and provide owners with funding to meet outstanding capital needs.

Other programs that support the preservation of affordable homes in rural areas are Section 515, the Multifamily Housing Preservation and Revitalization (MPR) demonstration program, Section 521 Rental Assistance and Section 538 Guaranteed Loans. In the joint report, NHPD reports that MPR provides grants, no interest loans, debt deferral, and mortgage restructuring to owners of older properties assisted by Section 515 and 514. MPR preserved over 3,500 homes in recent years, but the program has been oversubscribed. New, transferred, or consolidated Section 515 mortgages have supported the preservation of 4,170 homes, and Section 538 Guaranteed Loans supported the preservation of 3,819 homes in recent years. There is not enough data that supports how many properties have been awarded Section 521, but the addition of project-based rental assistance can be a key element in the recapitalization of a property at risk of expiration.

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